Israeli Prime Minister-designate Tzipi Livni says she will form a new coalition government by Sunday or call for elections.

Livni announced the decision Thursday following talks with her centrist Kadima party.

On Monday, President Shimon Peres granted Livni's request for a two-week extension to negotiate a deal that would keep the existing ruling coalition intact.

Livni reached a deal with the dovish Labor Party. But she has been unable to strike an agreement to keep the ultra-Orthodox Shas party on board, a move many observers, including political correspondent Gil Hoffman, say is key.

Polls indicate that if early elections are held, then Kadima would likely lose out to the hardline Likud party, denying Livni the chance to become Israel's first female prime minister in more than 30 years.

Some information for this report was provided by AFP and AP.